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Business lending by UK banks is down by £941m

LENDING by major UK banks to non-financial businesses tumbled by nearly a further £1 billion in July, on a net basis which takes into account repayments, industry figures have shown.

Figures published yesterday by the British Bankers' Association showed a tenth consecutive monthly net fall in lending to non-financial businesses, with a drop of £941 million in July leaving the total outstanding at £272bn.

The July fall was not as steep as the average £1.28bn net monthly drop over the previous six months, and followed a decline of £2.06bn in June.

Colin Borland, head of external affairs for the Federation of Small Businesses in Scotland, highlighted strong demand for financing from his membership, with firms looking to invest and recruit to take advantage of economic recovery.

He believed the availability and cost of bank loans for small businesses had improved, from a low base.

The BBA figures, which do not split the movements in lending by size of business, showed borrowing by non-financial companies had declined in the year to July by a net £11.1bn.

But the industry body noted much of this fall had been within the real estate sector, in which companies had been de-leveraging their bank borrowing. It cited sustained growth in lending to the manufacturing sector.

Asked for his view of the BBA figures, Mr Borland said: "There are obviously still issues around commercial property. That is still a significant chunk of ­lending so I suppose, if there are issues there, that is ­obviously going to have a knock-on effect. The message coming from our members in general is they are still positive about the outlook.

"They are still planning to invest in their businesses and take advantage of the upturn, and they are still looking to recruit."

He added: "The signals, certainly from our members, are positive. Whether that is necessarily going to translate into a demand for bank lending remains to be seen.

"It may be people have sufficient reserves or other funding options, but not everything can be financed in that way.

"I would still expect demand from them for financial backing for their plans to remain strong."

Asked about the availability and cost of bank funding for small businesses, Mr Borland cited the FSB's second-quarter survey findings that credit conditions were significantly better than a year earlier, although little changed from the preceding three months.

He added: "Essentially, we are in a much better position than we were this time last year but the quarter-on-quarter figures have remained relatively static.

"I think the headline message remains [that] things are getting better, albeit from a low base."

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